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U.S. Farms, Factories Can’t Produce Enough to Meet White House Goal to Cut China Deficit
In short, the White House goal of slashing the US trade deficit with China by $200 billion is going to be much more difficult than originally anticipated and perhaps unobtainable.
Related: Trump trade advisor swore at Treasury secretary during talks in China
WSJ
5/17/18
The White House is likely to fall well short of a plan to slash the U.S. trade deficit with China by half, in large part because American farms and factories will find it hard to produce enough exports to meet that goal, trade experts say. Although economists say trade deficits are caused by broader macroeconomic trends tied to how much a country saves and spends—not by changes in trade policy or exports of particular goods—President Donald Trump has sought to manage trade flows to reduce the deficit, and has sought China’s cooperation in achieving that goal. Even if the two sides could agree on items to target—they don’t—and even if China cooperated by lowering import barriers, trade experts say the U.S. simply doesn’t have the capacity to ramp up production enough to make the $200 billion goal. “The U.S. is operating at full employment. There isn’t a tremendous amount of underutilized U.S. capacity,” says Chad Bown, a trade economist at the Peterson Institute for International Economics.
Last year, the U.S. ran a $375 billion merchandise trade deficit with China, and a $337 billion shortfall when including the trade in services. Even big changes in exports are unlikely to reduce the trade gap by the amount the U.S. seeks, trade experts say. The U.S. also counts on a big increase in exports in liquefied natural gas. But China would only get a portion of that production, given U.S. firms’ reluctance to be too dependent on sales to any single country. Some agricultural products have more potential, though even those exports would fall well shy of the overall goal. Dermot Hayes, an Iowa State University agricultural economist, estimates that U.S. corn exports could jump from $150 million to about $10 billion annually within a few years if China vastly expanded its quotas and reduced its duties that are as high as 65%. During the talks, the Chinese asked Washington to relax its controls on technology sales, which Chinese officials said could lead to tens of billions of dollars in Chinese purchases a year. But that proposal was shot down by American negotiators, according to people familiar with the discussions. To pump up computer chip sales directly to China would mean moving the intermediate testing and assembly work to China. That would disrupt existing supply chains and build up the Chinese semiconductor industry.
In short, the White House goal of slashing the US trade deficit with China by $200 billion is going to be much more difficult than originally anticipated and perhaps unobtainable.
Related: Trump trade advisor swore at Treasury secretary during talks in China